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Telecommunications Laws Amendment
(Universal Service Cap) Bill 1999
Date Introduced: 25 March 1999
House: House of Representatives
Portfolio: Communications, Information Technology and the
Commencement: The Act commences on Royal
Assent. If the Act does not receive Royal Assent by 30 June 1999,
Schedule 1 is taken to have commenced on that date. Schedule 2 is
taken to commence immediately after Part 2 of the
Telecommunications (Consumer Protection and Services Standards)
To cap the cost
of the Universal Service Obligation (USO) at $253.32 million for
1997/98 and to provide for a formula for calculating the cap in
1998/99 and 1999/2000. The capping period will allow for a review
of the methodology for calculating the cost of the USO.
What is the USO ?
The Telecommunications Act
1997 contains provisions establishing a universal service
regime. The purpose of the regime is to ensure that all people in
Australia, wherever they reside or carry on business, should have
reasonable access, on an equitable basis, to standard telephone
services, payphones and prescribed carriage services. Telstra is
currently solely responsible for fulfilling the universal service
The Telecommunications Act 1997 allows
USO providers to recover some of the losses that result from
supplying services in the course of fulfilling the USO. A levy is
imposed on all carriers in proportion to their share of total
carrier revenue. Telstra submits its claim for providing the USO
(the net universal service cost - NUSC) to the Australian
Communications Authority (ACA) for assessment. Following this
process, the ACA announces the USO levy. Telstra contributes 85-90%
of the USO levy.
In 1996/97 the NUSC agreed among carriers was
$252 million. In 1997/1998 Telstra employed methodology prepared by
Bellcore International to determine the NUSC. The model was agreed
by Telstra, Optus, Vodafone and the ACA. Based on its
interpretation of the model, Telstra submitted that its NUSC for
1997/1998 was $1.8 billion.
In October 1998, the Minister announced(1) that
the Government would attempt to reach agreement with all
telecommunications carriers to cap the NUSC at $253.32 million for
the 1997/98 financial year. The Minister also stated that if such
an agreement could not be met the Government would legislate to cap
the NUSC. At this stage no agreement has been reached.
The Government has acknowledged that the cap is
only an interim solution, pending a reviewing of arrangements for
funding the USO.(2) In the mean time the ACA is continuing its work
assessing Telstra's claim.
Why is it necessary to impose a
Telstra's claim of $1.8 billion is a massive
increase in the NUSC. Rival carriers have strongly disputed
Telstra's calculations. For example, C&W Optus has claimed that
it could provide the USO service for only $178 million by using a
combination of wireless and satellite technology.(3)
There is concern that if the claim were to
stand, the levy contributions required of other carriers would
cripple competition in the telecommunications industry. Based on
figures contained in the Explanatory Memorandum, if
Telstra's NUSC claim were upheld, the levy contribution required
from other carriers would rise by more than 600 per cent. The ACA
is expected to provide an assessment of Telstra's claim by 30 June
1999. While the ACA's assessment process could result in
considerably lower levy contributions,(4) during the intervening
period, the industry would be subject to substantial uncertainty
that may inhibit investment.
Armed with the ACA's assessment, the Minister
will cause a review of funding arrangements for the USO to be
conducted. The Government expects to carry out a review in 1999 and
to enact changes to USO funding arrangements before 2000-2001.
The period of the cap will also allow time for
consideration of the issue of USO tendering. In evidence before the
Senate Environment, Communications, Information Technology and the
Arts Legislation Committee,(5) C&W Optus, AAPT and Network
Vodafone all expressed interest in competitive tendering for the
USO which is provided for in the Telecommunications Act
1997. The Government has indicated that it is keen to
investigate the option and as part of this process in early April,
the Department of Communications, Information Technology and the
Arts issued a discussion paper on the subject.
The objective of providing a capping regime for
1997/98, 1998/99 and 1999/2000 requires amendments to the
Telecommunications Act 1997 and the proposed
Telecommunications (Consumer Protection and Service Standards)
Act 1999 (the Consumer Protection Act).(6)
The Consumer Protection Act is largely a
restatement of existing legislation.(7) In his second reading
speech, the Minister for Finance and Administration (Mr Fahey) said
'it is essentially a transparency measure drawing together the full
range of consumer safeguards in a single Bill making it easier for
consumers to access information about their rights.'
As the Consumer Protection Act will re-enact the
USO provisions, the equivalent part of the Telecommunications
Act 1997 is repealed by the Telecommunications
Amendment Bill 1998.
The amendments to the Telecommunications Act
1997 in Schedule 1 will cap the cost of the USO in 1997/98 and
1998/99. While the amendments to the Consumer Protection Act in
Schedule 2 will establish the cap for the 1999-2000 financial
Schedule 1 amends Sections 183
and 186 of the Telecommunications Act 1997. These
provisions deal with the assessment of the USO levy liability.
Section 183 allows universal service providers
to claim levy credits for the cost of providing the USO. Subsection
183(5) provides that the claim must be accompanied by a report of
an approved auditor. Item 1 allows the ACA to
waive compliance with the audit requirements for a capped financial
Item 3 amends subsection 186(1)
so that the mechanism outlined in that section for calculating the
NUSC does not apply for a financial year that is a capped financial
Item 4 imposes new
subsections 186(13-27). New subsection
186(13) provides that a capped financial year includes
1997/1998, 1998/1999 and 1999/2000.(8)
New subsection 186(14) sets the
cap for 1997/98 at a maximum of $253.32 million. However the ACA
processes for assessing the levy amount will continue for 1997/98.
If the ACA finds that the USO obligation should be less than
$253.32 million then that lower amount will apply.
New subsection 186(15) imposes
a cap formula for financial years 1998/1999 and 1999/2000. If the
USO provider is Telstra and the Minister has not made a
determination the NUSC will be $253.32 million multiplied by an
'indexation factor' which will reflect movements in the CPI. Where
the USO provider is not Telstra, the NUSC is zero unless the
Minister has made a determination.
The Ministerial determination powers are
contained in new subsections 186(16) and 186(17).
The Explanatory Memorandum(9) provides three examples of
situations where a Ministerial determination may be necessary:
- Where as a result of the ACA's assessment of Telstra's 1997/98
claim, it determines that costs are less than the $253.32 million
- Where as a result of a tendering process, a carrier other than
Telstra is declared a national or regional universal service
- Where a new service is added to the Universal Service
In making such determinations, the Minister may
seek the advice of the ACA. Such determinations are subject to
Parliamentary disallowance (new subsection
New subsection 186(18) provides
that the Minister in his determination does not need to take
account of sub-paragraphs 138(c) or (d). These provisions
constitute part of the objects of the Universal Service regime.
Paragraph (c) provides that the losses that result from supplying
loss-making services in the course of fulfilling the USO should be
shared among carriers. Paragraph (d) provides that this information
should be generally open to the public.
Item 5 deals with the
possibility that an argument could be made that by varying
Telstra's capacity to collect the NUSC, the Act could be
characterised as a law with respect the acquisition of property. In
that case, the constitutional requirement for just terms would be
invoked. Item 5 applies section 591 of the
Telecommunication Act 1997 to this Bill to ensure that
reasonable compensation must be paid. The Explanatory
Memorandum(11) states that the amendment was prompted by
caution against a claim that the acquisition 'occurred as a result
of the amending Act, rather than the amended Act.'
The amendments in Schedule 2 to
the Consumer Protection Act largely mirror those outlined above
with the exception that it only applies a cap for financial year
Items 4 amends section 57 which
(like section 186 of the Telecommunications Act 1997) sets
out the various mechanisms for determining the NUSC. Under
Item 4, in the absence of a Ministerial determination,
Telstra's NUSC for the 1999-2000 financial year will be $253.32
million multiplied by the indexation factor (new subsection
57(13)). The indexation factor will be the increase in the
consumer price index since 1997/98 (new subsection
If the USO is in part tendered out in 1999/2000,
that carrier's NUSC will be specified by Ministerial determination
or else be zero (new subsection 57(13)).
This interim measure has wide industry support.
It represents the least disruptive way of buying time for the
industry pending a review of USO cost recovery arrangements and the
exploration of competitive tendering options.
- Minister for Communications, the Information Economy and the
Arts (Senator Alston), 'The Universal Service Obligation
Cost', Media Release, 12 October 1998.
- Minister for Communications, the Information Economy and the
Arts (Senator Alston), 'Government to Cap Net Universal Service
Cost', Media Release, 25 March 1999.
- Nick Miller, 'Optus Claims Rural Rip Off', The West
Australian, 18/2/1999, p. 7.
- The ACA recently released two reports that it had commissioned
as part of its assessment Telstra's NUSC claim. The ACA has stated
that adoption of the input values recommended in the reports would
result in a significant reduction in the NUSC amount compared to
Telstra's claim. See ACA, 'Release of Net Universal Service Cost
Reports', Media Release No.21, 20 April 1999.
- Evidence 3 February 1999, p. 8, 16, 21.
- The Telecommunications (Consumer Protection and Service
Standards) Bill 1998 passed the House of Representatives on 26
November 1998 and is now before the Senate.
- See Bills Digest No. 55 1998-99.
- The reference to the 1999/2000 being a capped year is
presumably to accommodate the situation where the
Telecommunications (Consumer Protection) Bill 1998 is not passed
and the USO provisions of the Telecommunications Act 1997
are not repealed.
- See page. 15, 16.
- In the 1998 election campaign, the Government made a commitment
to ensuring that a 64kps digital data service delivered by ISDN
would be available to 96% of the population and that for the other
4%, a comparable digital data download service delivered by
satellite would be made available. In a recent speech, the Minister
announced that amendments extending the USO would soon be
introduced. See Minister for Communications, the Information
Economy and the Arts (Senator Alston), Speech at the Communications
Law Centre - USO Tendering Workshop, April 14 1999.
- See page. 17.
- Under Item 18 of Schedule 4 of the Telecommunications Amendment
Bill 1998, the USO regime in Telecommunications Act
1997 continues to apply after July 1 1999 in relation to levy
matters for a financial year ending on or before June 30 1999.
23 April 1999
Bills Digest Service
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